The Joe Niece Team....The Results of Experience

Loss Mitigation

Loss mitigation is used to describe:
1. A third party/real estate agent helping a homeowner
2. A division within a bank that mitigates the loss of the bank
3. An attorney-backed process of negotiation between a homeowner and the homeowner's lender.

Our Loss mitigation process works to negotiate mortgage terms for the homeowner that will prevent foreclosure.

These new terms are typically obtained through loan modification, short sale negotiation, short refinance negotiation, deed in lieu of foreclosure, or cash-for-keys negotiation.

Kinds of loss mitigation

* Loan modification: This is a process whereby a homeowner's mortgage is modified and both lender and homeowner are bound by the new terms. The most common modifications are lowering the interest rate, reducing the principal balance, 'fixing' adjustable interest rates, forgiveness of payment defaults & Fees, or any combination of these.

* Short sale: This is a process whereby a lender reduces the principal balance of a homeowner's mortgage in order to permit the homeowner to sell the home for the actual market value of the home. This specifically applies to homeowners that owe more on their mortgage than the property is worth. Without such a principal reduction the homeowner would not be able to sell the home.

* Short refinance: This is a process whereby a lender reduces the principal balance of a homeowner's mortgage in order to permit the homeowner to refinance with a new lender. The reduction in principal is designed to meet the Loan-to-value guidelines of the new lender (which makes refinancing possible).

* Deed in lieu of foreclosure: This is a process whereby the lender releases the homeowner from the obligations of the mortgage in exchange for the Deed to the home.

* Cash-for-keys negotiation: This is a variation of the deed in lieu of foreclosure. The difference is that the lender will actually pay the homeowner to vacate the home in a timely fashion without destroying the property. The lender does this to avoid incurring the additional expenses involved in evicting such homeowners.

Benefits

The most common benefit to the homeowner is the prevention of foreclosure because loss mitigation works to either relieve the homeowner of the mortgage obligation or create a mortgage resolution that is financially sustainable for the homeowner. Lenders benefit by mitigating the losses they would incur through foreclosing on the homeowner. Immediate foreclosure creates a tremendous financial burden on the lender. Loss mitigation allows the lender to take a lesser loss right now in order to avoid the much greater losses caused by such foreclosures.

History and causes

Loss mitigation has been around for decades, but has experienced a renaissance since 2007. This rebirth has been a response to the dramatic increase in foreclosures nationwide. These foreclosures have been caused primarily by a stagnant economy, a decrease in home values, the credit crunch and the subprime mortgage crisis.

Beginning in 2007 the mortgage industry nearly collapsed. Large numbers of lenders went out of business and the rest were forced to eliminate all of the loan programs that were most prone to foreclosure. The elimination of these programs produced what is now referred to as the "credit crunch".

Faced with mounting losses from foreclosures lenders were forced to tighten lending guidelines. This means people that were able to previously qualify for loans are now unable to do so. Many of these people are in risky subprime, adjustable rate and negative amortization loans that prone to dramatic payment increases; without the ability to refinance out of these loans the only answer for many is foreclosure or loss mitigation.

The decrease in home values created a market with fewer qualified borrowers than homes for sale. When there is less demand the prices drop. This has lead to a real loss of equity for every homeowner in the country[1]. With less equity homeowners are less likely to qualify for a loan that will refinance them out of a risky loan; with less equity less homeowners are able to qualify for home equity line of credits or a second mortgage in order to pay for financial emergencies.

For many homeowners the loss of equity has been extreme enough to cause negative equity. Negative equity is when the home is worth less than the amount owed by the homeowner. This has created a situation for homeowners wherein their home, which was previously their most valuable asset, is no longer an asset at all. Such homeowners are more and more frequently 'walking away' from their mortgage obligations and letting the home go into foreclosure.